When your business is growing there may be a time when you need some extra capital to support your business growth. It’s those transition times that can be particularly challenging when the demand for your services is too high to manage with your current resources or equipment.
There are three key things you need to do to keep the finger on the pulse of your business. It’s not just about knowing whether your business is profitable. Knowing your business’ financial position is also about being able to go to a bank or financial institution at short notice to make a loan application. Or you could make an application for a State Government small business grant to support your business growth.
In all cases, you’ll need to prove your business financial health to the lender.
- Review your accounting system and ensure that you have your expense chart of accounts set up the right way. It is important that you have assets posted with the right account code in your system. There are also various report types that you can set up in accounting systems that will allow you to easily access the data.
- Make sure you enter your financial data every week and reconcile the ledger at least once a fortnight or monthly against your bank account.
- Review your financial position on a quarterly basis. In particular, look at the two critical areas of assets and liabilities.
Once you’ve set up your system properly and utilise the above processes, it’s easy to produce reports to meet your funding requirements at the click of a button. It is important though that you are consistent in your practices. Don’t let your data entry lag behind, as that’s what can trip you up to produce accurate reports.
Prevention is better than the cure
Most small business owners love making good money, but when it comes to managing the money for the business, there’s usually less passion for it. As outlined in our recent article The top 7 reasons businesses fail. confusing sales with profitability is a common mistake with new business owners.
While it’s often regarded as a necessary evil and red tape, it is what it is and businesses will always need to have rigorous financial administration and budgeting processes to be successful and have access to extra capital.
Having your accounting system set up properly to equip you with better reporting capability is definitely true to the adage ‘Prevention is better than the cure’.
As an accountant I can gauge how the business is performing by looking at the critical business numbers of your company. If you’re unsure about your business financial health, contact us for a FREE Business Health Check.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.